More Employers Take on Temps, but Planning Is Paramount

As the economy rebounds, many companies are hurrying to fill their staffs with contingent workers. But pitfalls abound on temp-tation island, and the post-recession influx of contingent workers only increases the need for employers to do their due diligence to avoid the risks that come with employing temporary workers.

Indeed, the number of temporary workers has been on the rise. In March, employers added 28,800 jobs in temporary help services, marking the third straight monthly rise, according to the U.S. Bureau of Labor Statistics. The jump follows a typical post-recession pattern, but some experts see a longer-term shift, as well.

At the same time, federal and state governments are increasing their scrutiny of contingent workforces and especially the misclassification of such workers. “When you hire contractors, are you really hiring contractors, or are they actually employees?” asks Ron Wainrib, a lawyer based in Franklin, Massachusetts, who specializes in contingent workforce law.

Soon after President Barack Obama took office, the Labor Department announced it would hire 250 more investigators to scrutinize issues that can affect contingent workers. In April, the Senate introduced a bill amending the Fair Labor Standards Act in an effort to prevent employers from misclassifying workers. And this spring the Labor Department is expected to publish a proposed rule on record keeping regarding worker classification.

Some companies aren’t waiting for the government to be their guide on this journey. Valerie Frederickson & Co., a Menlo Park, California-based human resources consulting firm, for instance, uses a stringent vetting process. Workers must answer questions that go beyond what the government requires. Those workers who want to be classified as “independent contractors” are asked for documentation that could include, among other things, a list of clients and tax information.

“It’s crucial to set up a legal vetting process for potential 1099 contractors and follow it 100 percent of the time,” says Valerie Frederickson, founder and CEO. “The consequences are huge if a mistake is made—both in terms of legal fines and employee relations problems.”

The firm rarely ends up using 1099 contractors for projects tied to its core functions, Frederickson says. “We want much more control over them and their work, including how and where they do it.” She might hire an independent contractor to design a new website, for example. “But once the site is up and running,” she says, “the updates are done by a W-2 member of our staff.”

Another significant challenge for many larger companies is simply determining how many contingent workers they have. Contingent workers may be sent by staffing agencies and clearly identified, but independent contractors can “disappear behind invoices that are for services,” says Garry Mathiason, a San Francisco-based lawyer who is chairman of Littler Mendelson.

Some companies hire a contingent workforce manager to help track and monitor temporary hires. For example, Peggy O’Neill, director of contingent workforce management for Bristol, Connecticut-based ESPN Inc., encourages managers to work closely with her team. Her group sends questionnaires to managers and potential contingent workers to determine whether they qualify as independent contractors. “Sometimes it’s a matter of: ‘Yes, you can still have that worker, but we have to classify them differently,’ ” O’Neill says.

Even when workers are employed by a staffing agency, the company that uses its services can face legal risks. For example, if a worker claims a violation of wage and hour laws, such as not being paid overtime, the staffing agency and the company where the work was done could be deemed co-employers and both held responsible, Wainrib says.

Close attention to vendor contracts can minimize such risks. Companies can negotiate contracts with staffing agencies that require them to pay legal expenses even if the company is found to be a co-employer, Mathiason says.

Employers also need to protect their intellectual property because many contingent workers have access to companies’ computer systems. First Data Corp., for example, doesn’t take any chances, according to Alonzo Martinez, director of enterprise security, risk and compliance for the electronic commerce company. “We absolutely screen 100 percent of our contingent workforce.”

First Data includes a provision in its agreements with staffing agencies that they will follow First Data’s background-check process, which includes using HireRight Inc., a background screening company.

There’s another benefit to thorough screening, Martinez says. “We can show a client in an audit scenario that we’ve thoroughly vetted someone. It’s a value-add for our clients.”